Strike While The Iron is Hot
When it comes to maximizing trader performance one thing I've always believed is how important it is to take full advantage of a trading day when the market is moving well and providing high quality opportunities to trade. This seems obvious enough but in my experience I've found many novice traders have limiting beliefs and actions that hold them back and at least some of this can be attributed to the oft-parroted saying that a day trader "just needs to make 2 points a day" to realize their dreams of wealth and freedom.
It's true that someone making 2 points every day can become an incredibly profitable trader. Nobody is doubting that on its initial face value. If you can make 2 points per day with one contract you're doing fine but if you can make 2 points per day every day with 10 contracts you're making a very substantial income and there's no reason you can't ramp up the position size from there. In the Emini S&P 500 a trader can regularly trade 20, 50 or even more contracts with ease.
The issue is that when our focus narrows to the outcome of a single day or even the outcome of a single trade it can actually make long-term profitability that much more difficult to achieve. Let's take a look at why that can be the case.
Not Every Trading Day is the Same
Making just a couple points while day trading Emini S&P 500 futures isn't actually all that difficult. Often you can pull that kind of profit out in a half hour or less. The difficulty is in actually keeping it and, more importantly, regularly exceeding it to balance out those days with less than stellar results.
The reality of trading is that every day is different and some days are certainly better than others. There's plenty of days where you can make a couple of points quickly but there are some that start slow with limited action where it takes a bit more time to find the trades that fit your trading plan or other days where the market enters into a whipsaw period that can cause a loss or two.
While veteran traders who are able to trade the full morning can realistically make profit nearly every day in spite of these conditions there are those who have a more limited trading window or market novices that will have break-even or losing days (though such losses should be kept small thanks to firm limits on overall risk).
Due to this it's important to realize two things. First, that a trader should generally have a longer term outlook on their trading. If you focus on "making just 2 points per day" it tends to put a lot of emotional weight into the outcome of every trade. Suddenly every trade carries more importance and the emotional burden on a trader can significantly increase thanks to just a single trade possibly meaning daily success or failure. This extra emotion added to the trading process rarely leads to more profitable outcomes.
As traders we must understand that our trading edge needs some time to play out even if our overall trading expectancy is very strong. The outcome of a single trade or even a single day doesn't determine much. What matters is following our plan, taking good trades that fit our rules, and letting our edge play out over a larger sample of trades. This is why I have the day traders in the STA Training Program focus on weekly and monthly results while considering their edge over samples of at least 20 trades.
Second, outlier trading days that offer far more profit potential than the average are essentially the "keys to the castle" when it comes to extreme profitability. You can still be profitable without them but taking advantage of the one or two days with high potential during the week often means the difference between decent weekly results and exceptional ones.
You can do all right by setting an artificial 2 point limit on your daily profit but some days offer far, far more. Take Thursday for example, a day that had numerous high quality market swings and plenty of profit potential as you can see in my charts. If you only came out of a day like that with a tiny 2 point profit you're severely limiting your overall profitability and potential!
Keep Playing When The Deck is Stacked in Your Favor
This is why I will always continue to trade for longer than my normal 2 hours or so on a given day if the market is moving exceedingly well and trading outcomes are highly predictable. It's not about being greedy or trying to hit some specific dollar figure for the day - it's about taking one good trade after another and continuing to do so if the market is offering the opportunity.
There's plenty of days where I might just trade for an hour to pick up some points and call it a day if the market isn't moving particularly well. There are times when other activities call me away after only a short period of trading. However, when the market is moving well, the setups are excellent, and the trading outcomes are consistently in your favor then it's usually best to trade until those conditions change.
Sure, I could have had my 2 points after the first three trades on Thursday and called it a day in about 15 minutes but look at all the potential opportunities I would have missed on a day of exceptional price movement. Considering it turned out to be the most profitable day of the year so far for myself and many STA traders it's a good thing we didn't pack things in!
If the market is doing its part to put the numbers firmly in your favor then don't let the opportunity pass without taking advantage - strike while the iron is hot!
- Strike While The Iron is Hot - March 1, 2021
- The Path to Becoming a Full Time Trader - February 22, 2021
- Looking to 2021 and Beyond - January 20, 2021
Great post! That’s true, not every trading day is the same. I get what you say there. There’s many people struggling to make that 2 points a day. Nothing you can’t achieve with practice and hard work.
Great result too!
Crazy result considering the risk involved here! What about losses and drawdown. Do you or the STA people stop at some point if taking losses?
Yes, we have a daily stop limit, Greg. Typically it’s at three full losses or -3.75 points. Beginner traders will hit that level only rarely but it can happen even if good trades are taken but as you can see in many Student Update posts the good days easily cover those difficult ones. More experienced traders are very rarely going to hit that max loss for the day but it’s still a very good idea to keep that strict limit in your plan.
Yup! Great post Cody!! Really hit my issues square on the head! I’ll keep working on it and I’m sure I’ll have a 20+ point day one of these days. Thank you for sharing! And thank you for such a great academy!
Thanks Adam! I know you’ve had a lot of things pulling on your time during the training process but I truly appreciate your dedication to learning and building your trading skills within STA and I’m sure you’ll get one of those crazy 20+ point days soon enough!
Do you trade other things or just ES? Any reason to trade ES over other futures or markets?
THanks!
Hey JT. With the coaching and training at STA I focus entirely on trading ES.
For one, I think it’s important that newer traders focus on just a single market/instrument until they achieve consistent profitability with it because spreading yourself too thin with dozens of charts is only going to extend the development process.
Second, ES is an excellent market for newcomers and veterans alike as it has excellent liquidity and volatility, is quite technical with clear patterns and trends, and is highly regulated as well which serves to protect the trader compared to some less regulated offerings such as Forex.
I do trade some other markets myself from time to time, including Forex, but these days about 95% of my trading is with ES as I love the quality opportunities it regularly offers.
It was a great day indeed, that one day made my whole week a great week basically. Thanks Cody
Good to hear you killed it as well, Shaun. Know you’ve been getting some amazing results lately so I’m not surprised in the least that you took full advantage of the day. Well done!
Wow amazing result! You pretty much had a perfect day and I know what your saying about needing to make the points when theyre there as this has been a major issue for me in the past but working through it. Thanks Cody.
Thanks Peter. The funny thing is that I actually didn’t really trade it as well as I could have if you look at my charts. I missed a sitter, I didn’t take nearly as much profit on a couple of moves as I could/should have, etc. Left a fair bit on the table. But that’s another lesson for another day – don’t let perfection get in the way of good. You don’t need to be perfect to be very profitable!